UBS Whistleblower Faces Arbitration

U.S. District Judge Katherine Polk Failla of the Southern District of New York ruled recently that a whistleblower’s retaliation claim under the Dodd-Frank Act must go through pre-dispute arbitration due to an agreement the whistleblower signed. Trevor Murray, who was fired in February of 2012 from UBS, signed a pre-dispute arbitration agreement. Judge Failla held that Murray could not cite certain anti-arbitration provisions in the Sarbanes-Oxley Act (SOX) to avoid arbitration for a retaliation claim under the Dodd-Frank Act.

The Dodd-Frank Act, passed in July 2010, established the SEC Office of the Whistleblower in 2011. The program was designed by Congress to provide monetary incentives for anyone who has knowledge of fraudulent activities to step forward and report possible violations. The program protects individuals who report possible violations by prohibiting retaliation by employers against employees who provide information about those possible violations.

Additionally, the SEC is required by law to protect the confidentiality of whistleblowers and cannot disclose any information that might reveal their identity. Meanwhile, the Sarbanes-Oxley Act was passed in 2002 in response to a series of accounting scandals among publicly traded U.S. companies. The SOX Act created enhanced accounting standards for those companies and protects whistleblowers with an anti-arbitration provision.

Judge Failla did not allow whistleblower Murray to re-form his claim to bring it under Sarbanes-Oxley and benefit from SOX’s prohibition of pre-dispute arbitration agreements. The court employed the Second Circuit’s three-part test to determine whether a party has waived its right to arbitrate:

the time elapsed from when litigation was commenced until the request for arbitration;

the amount of litigation to date, including motion practice and discovery; and

proof of prejudice.

The court concluded that the Defendant’s delay to compel arbitration was not enough to establish a waiver. Judge Failla wrote in her order:

Plaintiff cannot recast his claim to arise under Sarbanes-Oxley in order to benefit from the prohibition of predispute arbitration agreements afforded under that statute.

Judge Failla determined that Murray “may have a claim arising under Sarbanes-Oxley,” but dismissed consideration on the issue because it was not the issue before the court. Because Murray complained internally and did not complain to federal regulators, according to Judge Failla, the Dodd-Frank whistleblower provisions did not apply to him. It was not enough that he complained to the people at UBS. Murray’s case is stayed, pending the outcome of the arbitration proceedings with UBS.

Whistleblowers who suffer retaliation for disclosing securities law violations should follow the following procedure: file a claim under the Sarbanes-Oxley Act so that their administrative remedies are exhausted. After 180 days, the whistleblower can remove the claim to federal court and add a Dodd-Frank anti-retaliation claim. Additionally, it is important for potential whistleblowers to consult a lawyer and determine whether it’s beneficial to report internally. It is crucial that a represented whistleblower report the fraud to the appropriate federal agency to qualify under the Dodd-Frank whistleblower provisions.

Finally, whistleblowers should not sign an arbitration agreement as it will likely harm the ability to qualify as a whistleblower under various statutes, including the False Claims Act. Whistleblowers should seek advice and counsel from lawyers who are experienced in whistleblower litigation before signing any waiver of rights with their employer.

Lawyers at Beasley Allen continue to investigate fraud against both the federal and state government and encourage anyone who knows of fraudulent activities to step forward for a free and completely confidential consultation. Potential whistleblowers have the right to not be retaliated against for reporting the fraud they have witnessed. Anyone considering doing the right thing and blowing the whistle are strongly urged to seek legal advice before doing so.

Lawyers in our firm’s Consumer Fraud Section are very familiar with the False Claims Act and the SEC Whistleblower Program and can guide whistleblowers along the process. If you have any information and would like to speak with a lawyer, contact either Archie Grubb, Chad Stewart, or Andrew Brashier at 800-898-2034 or by email at Archie.Grubb@beasleyallen.com, Chad.Stewart@beasleyallen.com, or Andrew.Brashier@beasleyallen.com for more information.